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Regional Integration, Trade, and Latin America’s Place in the Global Economy

Especially in American academia, Latin America has been neglected over the past few decades. After many Latin American countries adopted neoliberal policies, politics, security and trade in the Western Hemisphere was of less importance and we saw a shift in attention towards fighting the war on terror in the Middle East. In this post (and potentially a short series), I would like to give some basic information about the position of Latin America relative to the world.

Let me know what you think about this kind of posts and if you would like to see more of them.

Regional Integration, Trade, and Latin America’s Place in the Global Economy

Starting in the 1980s, tariffs and trade barriers have been reduced by half and there has been more investment because of this liberalization. The goal of these developments is the promotion of exports. Theory suggests that liberalization promotes exports through:

Challenge-response mechanism of increased imports. Better quality and lower cost of infrastructure. Better quality and lower cost of imported inputs, which facilitates production chains. Moving of resources into areas of greater comparative advantage.

In reality, Latin America‟s export growth has been strongly propelled by commodity price rises. Also, the export success often happens in low value-added operations. However, there has also been some export diversification and movement up the value chain in “higher-tech” natural resource based exports.

Commodities exports have become more vital, but prices have gone down and the terms of trade are weakening. A possible solution is more regional integration. In the 1990s we saw a wave of regional integration through new organizations (NAFTA, Mercosur) and the revival of existing arrangements (LAIA). The objective was to intensify trade liberalization on a regional basis, providing a stepping stone to eventual more comprehensive extra-regional arrangements. However, economists ar...

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